Saturday, December 31, 2016

Corn prices in China fell about 15 percent over the past month after a brief rebound during October-November. Chinese officials would like to export some of their surplus corn in 2017, but they are not willing to let their price fall low enough to be competitive on the world market.

According to an analysis by cofeed.com, tight supply conditions in the early months of China's 2016/17 corn marketing season have reversed. The peak season for corn sales has arrived, and weather and logistics factors that constrained corn marketing during October-November have now been alleviated. Cofeed says that farmers in northeast China have given up their reluctance to sell their corn after receiving their corn producer subsidies. They need to raise money to pay off loans and prepare for the Chinese new year holiday.

Demand for corn in China, meanwhile, is tepid. Hog farmers have stepped up their slaughter as the peak consumption season approaches, and there is little impetus to expand among either hog or poultry producers. Purchases by industrial processors motivated by subsidies of 100-200 yuan per metric ton in northeastern provinces have tailed off as commercial inventories piled up. A number of starch manufacturers in north China have shut down or cut back on production due to environmental regulations aimed at clearing up what may be the worst-ever air pollution in the region.

Futures Daily also reported that corn traders have seen a much larger volume of corn entering the market recently, and processors have received more deliveries than they can use. The spot price at ports in Liaoning Province has fallen to 1500 yuan per metric ton and the futures price for May 2017 delivery has fallen to the same level.

According to prices posted on the Ministry of Agriculture web site, cash prices at Dalian ports fell about 15 percent from November 24 to December 29.

Corn prices at ports in Dalian, China during 2016

Month

Yuan/mt

24-Nov

1750-1780

30-Nov

1720-1740

7-Dec

1660-1680

14-Dec

1580-1600

21-Dec

1490-1510

29-Dec

1490-1510

Cofeed.com reports that the price for domestic corn arriving from the northeast in Guangdong province reached 1600 yuan per metric ton on December 26, down 310-340 yuan from late November. The estimated C&F price of U.S. corn arriving in Guangdong is estimated at 1570 yuan. Cofeed pronounces that imported corn has lost its price advantage. They forecast that China's corn imports will be about 2 mmt during calendar year 2017, down from an estimated 3.1 mmt in 2016.

There are also rumors that China plans to export corn. Cofeed reports that the Chinese government has issued export licenses to a number of large trading companies, and surmises that there is a strong likelihood that China will export corn in 2017.

Another online outlet reported that COFCO and at least one other state-owned company received corn export licenses in September, and linked China's corn export plan to the need to dispose of corn inventories. This report mentioned an initial estimate of 2 million metric tons for the export campaign, a volume that would put further downward pressure on international prices.

This month's corn prices at Dalian (the likely point of departure for any exports) translate to US$215-217 per metric ton, which does not appear to be competitive in nearby export markets. The average value of November corn imports by Japan ($188) and South Korea ($208) reported by customs statistics were lower than Chinese prices. Taiwan imported corn at $181 in October. There is speculation about whether Chinese officials will subsidize exports--that would be a violation of China's WTO accession commitment not to use export subsidies for agricultural commodities.

Despite their ambitions to export, Chinese authorities are taking action to prevent domestic corn prices from falling enough to be internationally competitive. At the beginning of the marketing season officials adopted an informal price floor of 1400 yuan per metric ton in northeastern provinces which they calculated to be the breakeven price that covers farmers' production costs (not including land rent). With renewed downward pressure on prices, Sinograin--the government's grain reserve corporation--is rumored to be preparing purchases of corn to hold the 1400-yuan "line of defense." Instead of the massive purchases used to support prices in the last 10 years, this year Sinograin is making small intermittent purchases and making announcements about their 1400-yuan price to put an informal floor under prices.

To put this informal price floor in perspective, the 1400-yuan "line of defense" is 30 percent less than last year's "temporary reserve" support price of 2000 yuan. The end of the temporary reserve program left a big hole in the northeastern corn market. Grain Bureau statistics show that only 36 mmt of the 2016 corn harvest had been purchased in major producing provinces as of December 25. That was 25.9 mmt behind last year's pace. The December 25 purchase volume also represents only 16 percent of the harvest reported by the National Bureau of Statistics.

China is moving at a snail's pace toward equilibrium in its corn market. Despite already-massive excess supply and huge reserves, the National Bureau of Statistics reported that 2016 corn production declined only 0.3 percent from the previous year. Cofeed estimates that corn consumption will be 190 mmt in 2016/17, which falls far short of the estimated production of 219.6 mmt. Chinese officials are targeting a decline in corn planting of only 10 million mu (670,000 ha). The COFCO futures analysis sees a possibility of a La Nina causing a surge in prices that would allow China to offload its reserves. Absent a catastrophic event or other market turmoil, it looks like China will have excess corn supplies for years to come.

Tuesday, December 27, 2016

A Chinese Province has banned planting genetically modified crops for five years. The ban has a complicated back story which includes another cynical manipulation of food safety hysteria to protect a province's soybean industry.

According to Xinhua News Agency, the ban was adopted this month as a revision of Heilongjiang's 4-year-old food safety regulations. The new regulation passed by the standing committee of the province's Peoples Congress stipulates that genetically modified food crops--specifically rice, corn, and soybeans--may not be planted in regions administered by the province starting May 1, 2017. It also bans the illegal production and marketing of genetically modified grain seeds, as well as illegal production, processing, and sale of food products containing GMOs. The regulation bans illegal imports or smuggling of GMOs. The regulation demands that genetically modified agricultural products and foods containing genetically modified material must be placed on specially-designated shelves or areas of retail stores or markets.

A Heilongjiang official involved in formulating the ban said the province supports research and development of genetically modified crops and does not oppose experimental trials, but the province thinks caution in the dissemination of genetically modified crops is "a wise choice" as long as there is "no accurate answer" regarding whether this technology is safe.

An unnamed agricultural official from the province said the genetically modified crops are not "green" food, so banning them gives more room for development of a "green food industry" and the ban "maintains food safety at the source," they said.

The Heilongjiang ban is controversial in China. Futures Daily praised Heilongjiang as a model for food safety regulation. According to Futures Daily, unnamed experts say the ban reflects the wishes of the public and should be a model for other provinces. Several other news media organs affiliated with the central communist party authorities, however, fired back with criticism of the province's ban.

Jinghua Shibao--a paper backed by Beijing propaganda authorities--criticized the Heilongjiang legislators who promulgated the ban for lacking scientific and legal knowledge. Jinghua said the ban is superfluous, as it duplicates existing laws. It also conflicts with the State Council's authority over agricultural GMOs, Jinghua said. The central government has set up a system to test and approve GMO crops. Jinghua also pointed out that the ban conflicts with the pledge to pursue commercialization of pest-resistant corn and herbicide-tolerant soybeans in the 13th five-year plan for science and technology innovation. Heilongjiang is China's largest producer of both corn and soybeans.

Jinghua Shibao further criticized the Heilongjiang GMO ban on scientific grounds. Jinghua quoted academicians from the Chinese Academy of Science who assert that transgenic technology used in breeding is not a food safety or environmental threat. One scientist pointed out that the Ministry of Agriculture, the United States FDA and Academy of Sciences have found no food safety concerns with GMOs. Jinghua commented that it is "worrying" that Heilongjiang legislators have insufficient understanding of science and technology.

In an article subtitled "Don't let the public be misled in science," Science and Technology Daily raised concerns that divided opinion on the GMO ban posed "endless worry for the development of transgenic technology" in China. This article quoted scientific experts who assert no conflict between genetically modified crops and "green" development.

Science and Technology Daily implied that the province's commercial concerns are the real motivation behind the ban when it quoted a Heilongjiang official who explained that the ban is designed to transform the province from a "big granary" to a "green granary," a "green garden," and a "green kitchen." The Heilongjiang official explained that this strategy is predicated on the concerns about GMO foods among Chinese consumers.

The Xinhua article on the Heilongjiang ban said the provincial statistics bureau found 91.5% of people surveyed in Heilongjiang during October opposed the production of genetically modified crops in the province.

"Do not let food safety concerns be kidnapped by local interests," another commentary on Guangming Net, suggested that food safety concerns mask the protection of local interests that lies behind the GMO ban in Heilongjiang.

Early in the last decade the Heilongjiang Province soybean industry began strategizing to use "non-GMO" and "green" attributes to differentiate their product from imported soybeans. Over the years, this business strategy morphed into a strategy of manipulating GMO fears to portray imported soybeans as "unsafe."

The first "soybean revival plan" was launched in Heilongjiang during 2001, the year China joined the WTO and about five years after China began importing soybeans in large volumes. That campaign sought to help local farmers compete head to head with imported soybeans mainly by subsidizing seeds for high-oil varieties used to produce oil and meal. A smaller proportion of seeds were for high-protein beans--used for food products like tofu and soybean milk.

In 2003, the Ministry of Agriculture released a plan focused on developing "high-oil soybean" advantaged areas, mainly in Heilongjiang. The focus on high-oil varieties probably reflected the fact that it was also (primarily?) intended to protect soybean oil processors in the province, most prominently a particular company affiliated with Heilongjiang's state farm system.

China's first regulations for management of genetically modified organisms were also issued in 2001. The 2003 high-oil soybean plan launched the strategy of taking advantage of GMO fears to differentiate non-GMO Heilongjiang soybeans as "safe." The plan advocated using the "food safety advantage" of Northeastern China's non-GMO soybeans to create a market niche among consumers around the world who worried about GMOs. One of the four recommendations of the 2003 plan to "strictly enforce the regulations on GMO labeling" used language nearly identical to the Heilongjiang official's explanation of this month's ban. The plan said that supervision of GMO products had to be strengthened to protect consumers' "right to know" and "right to choose" as long as the harmful effects on human health and the environment are not fully determined.

A 2004 article on strategy for Heilongjiang's soybean industry emphasized the advantage of non-GMO soybeans, recommending the industry follow public opinion and consumer psychology. This article recommended setting up specialized non-GMO soybean-producing districts to ensure that GMO beans do not mix with non-GMO beans. However, the authors were not themselves anti-GMO: they also called for staying abreast of world research on GMO soybeans.

In June 2013, Heilongjiang's soybean advocates played the GMO card in a big way by asserting on national television that imported soybeans cause cancer. In a program on China's Central TV network, the deputy director of the Heilongjiang soybean association claimed he had found a correlation in the incidence of cancer across provinces and the consumption of GMO soybean oil. The industry official produced no scientific study, instead turning the tables by demanding that proponents of GMOs produce studies proving they are safe. The soybean association official's evidence: "After working over 20 years in the grain industry, I have seen the possibility that GMO soybean oil and the probability of developing tumors are related." He cited a 2012 study by a scientist in France that was withdrawn due to poor experimental design and an unconventional release of the results calculated to generate sensational news media stories before any other scientists could refute them.

Heilongjiang soybean association official interviewed on TV

about his findings linking soybean oil consumption to cancer.

The soybean industry official said at the time, "Our association’s conclusion is that edible transgenic soybean oil can cause cancer and infertility in consumers. so GMO soybean oil should not be used for commercial consumption without findings that it is safe." This scared Chinese consumers accustomed to food safety scandals, and was followed by numerous other news media reports on the topic. The alleged GMO-cancer-infertility link became conventional wisdom for many Chinese citizens, yet soybean imports continued growing.

In January 2016, the soybean industry official repeated his assertion that imported GMO soybeans are unsafe and proclaimed that it was time for the country to take action. However, most of his comments were focused on his assertion that excessive soybean imports are a "powerful weapon for foreign control of the Chinese vegetable oil industry." The official emphasized that China needed to keep its non-GMO soybeans separate from GMO beans to prevent contamination because there is such great demand for non-GMO soybean protein used for foods in Japan, Korea, the United States and Southeast Asia.

Returning to the ban on GMOs announced this month, none of the articles quote the deputy director of the Heilongjiang soybean industry association even though he is normally quoted in nearly every news media article on the soybean industry. However, the Heilongjiang officials explaining why they promulgated the ban used language nearly identical to his, including the demand that safety of GMOs be proven before they are commercialized and referring to imported soybeans as a "powerful weapon."

A Heilongjiang legislative official quoted by Science and Technology Daily admitted:

"In fact, early on we worried that imported crops carried a GMO weapon. I saw on the internet that people in Europe claimed that GMOs caused tumors, although that was later refuted. But clearly these rumors have taken root."

A science writer quoted in the same article said, "Anti-GMO [attitudes] persist despite refutation of the rumor." His assessment was that "the incident reflects a lot of problems," including insufficient knowledge of transgenic technology among local officials.

An economics professor at Beijing Technology University also quoted by Science and Technology Daily who has studied adoption of GMOs in agriculture for many years said,

"It is not hard to incite public opinion with bewitching rumors. It is easy for rumors to influence public policy when the public lacks correct knowledge and information."

Wednesday, December 21, 2016

A Chinese basketball star appealed his suspension for failing a doping test by arguing that he must have accidentally ingested the banned substance through something he ate. Such allegedly inadvertent doping incidents have become so common that the Chinese Basketball Association has told teams to require their players to eat all meals in team hotels.

Tao tested positive for "lean meat powder" (瘦肉精), a colloquial name used in China for a class of beta agonists that are used to build muscle. Clenbuterol is the most common one. These compounds are used by bodybuilders to build muscle mass, but farmers also use them (illegally) to raise pigs and other livestock with a higher proportion of muscle instead of fat. The use of beta agonists in raising livestock has been banned in China since 2000.

Tao claimed that he must have ingested the banned substance accidentally from food that he ate. A league hearing held on December 20 confirmed Tao's claim that he accidentally ingested the banned substance, but his suspension has not yet been lifted. The National Sports Bureau is reportedly reviewing the results of the league's investigation before a final decision is announced.

Beijing Youth Daily reports that alleged inadvertent doping tests in China's basketball league are on the upswing. Tao's teammate, Jia Cheng, has also been suspended for failing a drug test. Jia's story is that he accidentally ingested a banned substance when he used an herbal balm to recover from injuries before an international competition last summer. In previous seasons other players have blamed their failed drug tests on substances in food. One such player got off with a warning instead of a suspension last season.

League officials have urged teams to require their players to eat with the team in their hotel or training facility. Moreover, they recommend requiring the hotel to keep records of all the food served and save samples of meat for at least 3 days.

Some players complain that such draconian rules would be hard to enforce. It would be unreasonable to ban players from going out after games or having dinner with friends, some players say.

Inadvertent failure of drug tests by athletes has been a concern since Beijing hosted the Olympics in 2008. Special pig farms were set up to supply Olympic facilities and athletes were forbidden to eat outside the Olympic Village. Two years ago, this blog posted a review of cases where Chinese athletic teams were forbidden to eat outside their training facilities to avoid inadvertent consumption of beta agonists.

Tuesday, December 13, 2016

China's high farm production costs stem from high land rents, incompatibility of fragmented fields with mechanized farming, and tenants' disincentive to make long-term investments, according to a recent article in Economic Information Daily.

The article zooms in on bottlenecks in a countryside set up for small-scale subsistence farming that are "strangling" the competitiveness of newly commercialized Chinese farmers caught between the "floor" of rising production costs and the "ceiling" of low prices for imported commodities. The director of a government grain-buying station in Jiangxi Province identifies high costs as the root problem that keeps Chinese farmers from being internationally competitive. "If we don't address this problem, the volume of grain imports will be hard to reduce," he warns.

The director of rice producers cooperative in Jiangxi said land rent of 350 yuan per mu per crop --farmers here commonly grow two rice crops per year -- is the largest component of production cost for rice. Taking into account the local yield, the the 850-yuan production cost translates to a break-even price of 2 yuan per kg for paddy rice. That translates to a price for milled rice of roughly $450 per metric ton at the current exchange rate. That price is slightly higher than the average value of China's imports of rice from Vietnam during October 2016.

The Jiangxi Province production cost survey estimated the rice production cost at 958 yuan per mu, but their estimate of land cost was only 150 yuan. The production cost survey estimated that farmers' profit was only 113 yuan per mu, down 26.7% from last year.

The cost survey team in Jiangxi's Fuzhou County estimated the rent for good quality land at 700 yuan per mu (about $250 per acre at the current exchange rate). The Fuzhou team attributed the high rental to competition for a limited supply of good land due to "blind" investment in commercial scale farming by some farmers and outside investors. A local agricultural official in Anhui Province's Taihe County estimated local land rent at 800-1000 yuan per mu ($287-$359/acre), which he described as "exceeding farmers' expectations."

In Quanjiao County of Anhui Province, a provincial agricultural official estimated that the cost of planting a winter wheat crop followed by rice costs 1700 yuan per mu to produce. At minimum prices for both crops and taking into account average yields, he estimates the "profit" at 150-200 yuan per mu.

Farmers would like to mechanize production to save on labor costs as off-farm wages soar. However, the Economic Information Daily reporter found that poor rural infrastructure impedes the mechanization process. An official in Hunan Province described the problem with a popular saying: "Tractors can't get through the gate, can't get down to the field, and can't get home." A large-scale farmer in Jiangxi Province told the reporter that there is a harvester that can be hitched to a tractor but it can't be used in the small, fragmented fields in his area.

Economic Information Daily also found that large-scale farmers have little incentive to make long-term investments to address the poor infrastructure due to "unstable contracting relations." Rural land cannot be bought or sold--farmers who want to expand their operations must rent the rights to use the land from dozens of villagers. Thus, large-scale farmers are tenants who face the risk of losing the land. Another risk is that the villager/landlords may demand higher rents if the tenants make investments in the land that raise their profits.

Another farmer in Poyang County of Jiangxi Province who has been renting in land for ten years gave an example. During rains the roads he uses to reach his fields become flooded and impassible. He finally spent 10,000 yuan to hire trucks to put gravel on the road. The farmer says he would have made a larger investment to pave the road a long time ago if he had more certainty about his control of the farmland. The "instability" of land rental raises costs by inducing farmers to spend money on repeated short-term fixes, the Poyang farmer said.

The Economic Information Daily reporter asserts that slow development of farm services also contributes to high production costs. For example, he finds that farmers are unable to hire people to bring in machinery to plow, seed, or harvest their fields at a reasonable cost because custom-farming services have been slow to develop. The government instead subsidizes small farmers to buy their own machinery which is only used a few times a year. The reporter describes the idle machinery as wasteful and costly.

According to a Jiangxi farmer cultivating 10,000 mu (4050 acres), farmers still have to spend a lot of their own money to buy farm machines even though there is a generous government subsidy. He says the farmers would rather hire someone to come in to do the plowing, seeding and harvesting for them instead of buying their own machines. But they usually charge a high fee--if you can find someone to do it.

This farmer plans to act as an input dealer and offer mechanized farming services to other farmers. He says he can buy seed, fertilizer and pesticide in bulk directly from the factory at a discount which he passes on to farmers who buy from him. He also offers custom farming services. He claims these services can cut production costs for his farmer-customers by 100 yuan per mu.

The director of an extension station in Anhui Province recommends that the government regulate land transfer to facilitate rentals and reduce costs. He recommends setting land rentals to ensure that farmers get a minimum net return. This sounds like turning agriculture into a public utility.

The weak incentives for farmers to make long-term investments means that it's up to the government to make the investments. And indeed, one of the government's headline agricultural support programs is to build "high standard" agricultural fields. However, it's unclear that the government can do all of the investment. The construction programs subsidize only part of the cost, with much of it financed by loans. A local official in Anhui Province's Tongling City observes that the central and local governments have been engaged in such rural infrastructure programs for years, but the pace has been insufficient to address the problems. Moreover, there are too many unpaid debts from this program, the official said.

An official in Gao'an County of Jiangxi agrees that the pace of construction is not fast enough to address the urgent problems. He estimates that it would take 30-40 years to compete the "high standard field" task in his county.

The government is also giving a lot of attention to improving agricultural services, but plans seem vague. The leader of an agricultural services cooperative union in Jiangxi makes typically vague recommendations that the government foster a specialized agricultural services industry, calculate reasonable costs for services, and use subsidized loans and "government buys services" to expand the sector.

Saturday, December 10, 2016

China's National Bureau of Statistics has reported that the country's grain production fell during 2016. This is the first decline reported by the Bureau since 2003, breaking China's string of 12-straight increases in grain output. A senior statistician with the Bureau explained that the decline in output was the result of simultaneous declines in both area planted and yield. The Bureau estimates that 33 percent of the decrease in output was due to shrinking area planted and 67 percent was due to lower yields.

China 2016 grain production statistics

Area planted

Yield

Production

1000 ha

kg/ha

1000 mt

Grain

113,028.2

5,452.1

616,239

Cereals

94,370.8

5,988.8

565,165

Corn

36,759.7

5,972.7

219,554

Rice

30,162.4

6,860.7

206,934

Wheat

24,186.5

5,327.4

128,850

Beans

9,710.5

1,781.0

17,294

Tubers

8,946.9

3,775.5

33,779

Other*

3,262.2

3,012.7

9,828

By season:

Summer grain

27632.4

5037.7

139,204

Early rice

5619.8

5832.4

32,777

Fall grain

79776.0

5568.8

444,258

*"other" grain numbers calculated.note: China's definition of "grain" includes soybeans, other beans, and tubers, as well as cereal grains.

The decline in grain output was modest--down only 0.8 percent from last year--and the Bureau described the 2016 output of 616.34 million metric tons as an "abundant harvest." With China now suffering from a grain glut, there is less urgency to increase grain output [and perhaps less urgency for statisticians to report increases?]. The 12-straight increases in grain production during 2003-15 followed an alarming drop in output in 2003 that was accompanied by a surge in prices late that year. The 2016 output is still 35 percent larger than the output in 2002.

In historical context, China's grain output is six times the output in 1950 despite relatively little change in the amount of area planted in grain. In fact, the area planted in grain this year is roughly the same as reported in 1950. The area planted in grain in 2016 has rebounded since 2003 and is somehow at roughly the same level it has been over the last 65 years, despite massive urbanization, construction of industrial parks, highways, and diversion of agricultural land to fruit orchards, fish ponds, and other uses during the last two decades.

There are also some cycles evident in grain-planting. Area planted in
grain surged as the country stabilized and reclaimed land during the
1950s, declined during the ironically-named "Great Leap Forward" of
1959-61, rose during the 1970s, fell when farmers were given freedom to
plant what they wanted during the 1980s, and area fell sharply during the
last grain glut of 1998-2003. A heavy policy emphasis on grain production from 2004 to 2015 resulted in relentless increases in grain planting even as housing estates spread across the countryside, rural-urban migration accelerated and other crops became more profitable than grain.

China may be about to enter another down-cycle in grain output as
authorities seek to deal with bulging stockpiles of grain and
environmental calamity. A structural adjustment program will shift land
from corn to soybeans and fodder crops over five years, land
contaminated with heavy metals will be retired, and land will be taken
out of grain production in areas where underground aquifers have shrunk
to alarming levels. The Bureau's statistician explained that the structural adjustment program of "corn to soybeans," "grain to fodder," and "grain to oil crops" was the main reason for the decline in grain area during 2016. Corn output fell 2.2 percent--less than many expected yet still accounting for most of the decline in grain output. Wheat output fell 1 percent and rice output fell 0.6 percent.

The statistician explained that the structural adjustment program also contributed to the decline in overall grain yield this year. The corn yield is 3.3 times the soybean yield, so switching area from corn to soybeans brings down the overall grain yield. Soybean area expanded 10.7 percent, he said (although the report did not reveal any soybean statistics).

The statistician also blamed widespread flooding and drought for the decline in grain yields during 2016. Heavy rains during the early summer flooded some fields and caused lodging of crops in southern regions, especially in Anhui and Hubei provinces. Southern provinces were also affected by extremely hot weather during mid-summer. Corn was affected by drought in parts of northeastern and northwestern provinces where irrigation was not available. According to the Bureau, 26.5 million hectares were "affected" by disasters during January-October this year, up 25.7 percent from last year. They say crops were lost entirely on 4.15 million hectares, 70 percent more than last year.

Thursday, December 8, 2016

Smuggling of agricultural products over China's porous borders has become rampant as Chinese prices are now far above prices in neighboring countries.

Rice is one of the most commonly smuggled commodities since China has a long border with major rice producing countries. Customs officials say they caught 57 gangs smuggling 218,500 metric tons of rice and other grains valued at over 1 billion yuan during the first ten months of 2016.

Authorities have built a number of concrete barriers--including a 100-meter reinforced concrete wall--to stop the smuggling. However, payoffs to local enforcement officers and new routes to circumvent the walls allowed the smuggling to continue.

Another means of smuggling rice is to falsely report long-grain rice from Vietnam as medium-grain rice, which is eligible for a lower tariff.

Once in the country, smuggled rice reportedly is shipped by rail to various cities around China in Chongqing, Chengdu, Nanjing, and Henan. There it is blended with higher quality rice, polished, or repackaged as domestic rice. Wuhan--thousands of miles from the border--had two anti-smuggling campaigns that nabbed 18 smugglers and 28,700 metric tons of rice.

A detailed investigative report of pig-smuggling broadcast on China's central television in November got a lot of public attention. One individual involved in the business estimated that 15,000 live hogs are smuggled each night at a Guangxi Province border crossing with Vietnam. Trucks bypassed an inspection station, passed through a toll booth and reportedly delivered hogs to slaughterhouses in various Chinese provinces. Smuggling of various items is so profitable in this area that local entrepreneurs have constructed dozens of private roads that smugglers pay to use. China has banned pigs from Vietnam since 2003 over concerns about foot and mouth disease (Vietnam bans Chinese pigs over classical swine fever which the Chinese deny is a problem).

Wednesday, December 7, 2016

The China Agricultural Supply and Demand Estimates (CASDE) for December have only a few modest tweaks to the estimates compared with November.

Most changes were made in the corn estimates. 2016/17 corn production was raised 1.05 million metric tons (mmt), to 214.65 mmt. Corn consumption was raised 450,000 metric tons, to 210.72 mmt. The carry-out was increased by 600,000 mt. CASDE forecasts China's 2016/17 corn inventory to expand by 4.43 mmt. Imports are kept at a minimum level of 1 mmt for 2016/17.

CASDE revised upward their view of the 2016/17 corn crop. They raised harvested area to 36.016 million hectares, essentially equal to their planted area of 36.026 mil. ha. The yield was also revised upward to 5960 kg/ha from last month's 5935 kg/ha estimate. Compared with last year, CASDE estimates that 2016/17 corn area and yield are both down from 2015/16. The estimate of China's corn output for 2016/17 is down 4.4 percent from 2015/16, yet the inventory is still expected to increase this year.

CASDE increased their estimate of corn consumption for food (100,000 mt), feed (50,000 mt) and industrial use (300,000) mt. CASDE attributed the increase in industrial use to lower corn prices and better profits for starch and alcohol manufacturers.

China corn supply and demand (Ministry of Ag, December 2016)

Item

Unit

2015/16

2016/17 Nov.

2016/17 Dec.

Planted area

1000 ha

38,117

36,026

36,026

Harvested area

1000 ha

38,117

35,990

36,016

Yield

Kg/ha

5,892

5,935

5,960

Production

MMT

224.58

213.6

214.65

Imports

MMT

3.2

1.0

1.0

Consumption

MMT

194.05

210.27

210.72

--Food

MMT

7.65

7.72

7.82

--Feed

MMT

121.01

133.48

133.53

--Industrial use

MMT

54.17

57.45

57.75

--Seed

MMT

1.66

1.61

1.61

Loss and other

MMT

9.56

10.01

10.01

Exports

MMT

0.01

0.5

0.5

Surplus

MMT

33.72

3.83

4.43

The CASDE write-up on soybeans emphasizes the effect of a September regulation that raised trucking costs and reduced shipments of domestic soybeans from the northeast (the report's discussion of corn does not mention this, although other sources say transportation costs and bottlenecks are slowing domestic shipments of corn). Processors have raised their soybean purchase prices, CASDE says. China's National Grain Reserve Corporation (Sinograin) has also raised its procurement price to replenish reserves, CASDE says, causing other buyers to raise prices. CASDE raised its forecasted interval for domestic soybeans by 100 yuan to 4450-4650 yuan/metric ton. The C&F price of imported soybeans is 3250-3450 yuan/mt. CASDE has not changed its 2016/17 estimate of imports--still 85.3 mmt.

China soybean supply and demand (Ministry of Ag, December 2016)

Item

Unit

2015/16

2016/17 Nov.

2016/17 Dec

Planted area

1000 ha

6,590

7,156

7,156

Harvested area

1000 ha

6,590

7,150

7,150

Yield

Kg/ha

1,762

1,748

1,748

Production

MMT

11.6

12.5

12.5

Imports

MMT

83.2

85.3

85.3

Consumption

MMT

96.7

99.7

99.7

--Crushing

MMT

82.9

85.5

85.5

--Food

MMT

10.4

11.2

11.2

--Seed

MMT

0.5

0.6

0.6

Loss and other

MMT

2.9

2.5

2.5

Exports

MMT

0.1

0.2

0.2

Surplus

MMT

-1.9

-2.1

-2.1

Only minor changes were made in CASDE's cotton balance sheet, including small reductions in yield and imports for 2016/17. Cotton imports were shaved from 960,000 mt to 900,000 mt. China's cotton imports are down as authorities issue only the bare minimum of tariff rate quota for the second year in a row. China continues to slowly unwind its cotton inventory. CASDE expects 2.05 mmt of cotton inventories to be injected into the market during 2016/17, but the carry-out will still be 9.18 mmt, still a very high stocks-use ratio of 122 percent.

China cotton supply and demand (Ministry of Ag, December 2016)

Item

Unit

2015/16

2016/17 Nov.

2016/17 Dec

Begin inventory

MMT

12.8

11.11

11.11

Planted area

1000 ha

3,267

3,100

3,100

Yield

Kg/ha

1,510

1,526

1,523

Production

MMT

4.93

4.73

4.72

Imports

MMT

0.96

0.97

0.90

Consumption

MMT

7.54

7.52

7.54

Exports

MMT

0.02

0.02

0.01

End Inventory

MMT

11.13

9.27

9.18

Only minor changes were made in the edible oils balance sheets and no changes were made in the sugar S&D.

China edible oils supply and demand (Min Agriculture, December
2016)

Item

Unit

2015/16

2016/17 Nov.

2016/17 Dec

Production

MMT

25.3

25.81

25.79

--Soy oil

MMT

14.74

15.17

15.16

--Rapeseed oil

MMT

5.6

5.55

5.55

--Peanut oil

MMT

3.01

3.18

3.18

Imports

MMT

5.81

5.50

5.55

--Palm oil

MMT

3.39

3.20

3.20

--Rapeseed oil

MMT

0.77

0.75

0.80

--Soy oil

MMT

0.59

0.58

0.58

Consumption

MMT

31.17

31.38

31.41

--Urban

MMT

20.41

20.55

20.8

--Rural

MMT

10.76

10.83

10.61

Exports

MMT

0.11

0.13

0.13

Surplus

MMT

-0.17

-0.19

-0.20

China sugar supply and demand (Ministry of Ag, December 2016)

Item

Unit

2015/16

2016/17

Planted area

1000 ha

1423

1433

--sugar cane

1000 ha

1295

1270

--sugar beets

1000 ha

128

163

Yield

--sugar cane

MT/ha

60.3

60

--sugar beets

MT/ha

53.85

52.5

Sugar output

MMT

8.7

9.9

--sugar cane

MMT

7.85

8.85

--sugar beets

MMT

0.85

1.05

Imports

MMT

3.73

3.5

Consumption

MMT

15.2

15

Exports

MMT

0.15

0.07

Surplus

MMT

-2.92

-1.67

This CASDE report was issued December 5, a week earlier than the scheduled December 12 release. The report updated the list of scheduled release dates for 2017, with the next report due January 12, 2017.